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There are multiple options available to finance a new business for 2022, and some might be better options for you than others. Understanding how each works and the pros and cons of them will help you in narrowing down your options.
Here we have a rundown of four popular financing options before you go for the quick loans option (although that may be the best option, depending on circumstances) :
- Savings
- Angel investors
- Crowdfunding
- Business loans
Let’s look at them in order.
Savings
The first option you should consider for financing a new business in 2022 is using money from your personal savings (not money you need for bills etc.), this is also known as bootstrapping. On the pro side of this option, starting a business using your own savings means you avoid going into debt, at least not right at the start.
On the other hand, using your own hard-earned money to start a business is risky – for you. If for whatever reason, things don’t work out then you’ve lost whatever amount you invested.
Your savings may also only be able to take you and your business so far if you don’t a lot of savings. In this instance, you may still end up having to use other methods of investment.
Angel investors
Angel investors and venture capital are two options available to new businesses that don’t involve borrowing. Instead, what happens is you are receiving money from companies or individuals that routinely invest in start-ups.
Working with angel investors, to finance your new business, has some advantages. The big one is that the money you receive does not need to be paid back. This means that if things don’t work out, for whatever reason, then you are not left with a debt.
Compared to business loans, which are usually capped at around £200,000 for a small business, you could potentially raise millions with angel investors.
If you are wondering if there is a catch, there is. When you accept finance from either angel investors or venture capital companies, it is usually on the condition that you give them an equity stake in return.
This means that you are giving them a piece of your company. You need to be sure that you are okay with this before you consider approaching this kind of investor.
Crowdfunding
Crowdfunding is another popular way to raise cash from people rather than banks. Several crowdfunding platforms can be utilised to get start-up businesses off the ground. There are also more generalized platforms that you can use to tap into working capital.
Some crowdfunding platforms, such as Kickstarter, are rewards-based. This means that instead of paying the money back to investors or giving them equity, you offer a reward instead. For instance, if your business is developing a new smartwatch, you might offer prototypes to your bigger investors. The smartwatch maker Pebble famously started this way on Kickstarter. If you want a spreadsheet for creating a calorie amortization template for weight loss. There are some of my most powerful and flexible templates.
Business loans
Business loans are the more traditional path to take when financing any new business venture. One great thing about a business loan is that there are a lot of different options, depending on who you bank with or choose to approach.
Something to keep in mind though is that some business loans may be more difficult to apply for than others – especially if you are starting a new business and have no prior experience in running a business successfully.
You may also have a hard time securing a term loan from a bank, whereas an online lender could be a little more flexible in terms of offering business financing options.
And you may have a harder time getting a term loan from a bank whereas an online lender may be more flexible in offering to finance to new businesses.
